Retirement savings products likely to face changes to compounding of savings periods
Amending proposals have been submitted as part of the forthcoming amendment to the Act on Child Care Services in Children’s Groups to ensure that savings periods are added up upon the transfer of funds to new retirement savings products and that the new tax treatment is correctly applied to state aid advances relating to building savings for calendar years 2023 and earlier.
Retirement savings products
According to the current wording of the Income Tax Act, tax-efficient retirement savings products are those through which taxpayers save for at least 120 calendar months from the date of their arrangement and at the same time do not make a withdrawal earlier than at the age of 60. The Income Tax Act does not imply that the savings period can be added up upon the transfer of funds to a new retirement savings product. As a result, current legislation in fact restricts taxpayers from transferring funds between various tax-efficient retirement savings products of the same type or from transferring funds from supplementary pension insurance with state contribution to a tax-efficient additional pension savings scheme.
The amending proposal responds to this deficiency by stipulating that savings periods shall be added up upon the transfer of funds from one retirement savings product to a new one of the same type. However, the conditions of the funds being transferred to the same type of retirement savings product does not apply where funds are being transferred from a supplementary pension insurance scheme to an additional pension savings scheme. The savings periods shall be added up only if the taxpayer transfers all saved funds to a new retirement savings product.
The good news is that according to the transitional provisions of the amendment, the new rule should apply to retirement savings products agreed upon after 1 January 2024 as well as before that date.
Building savings
Apart from the issue of adding-up of savings periods for retirement savings products, legislators are also proposing to add a transitional provision on state aid for building savings. The proposed transitional provision is intended to ensure that the new tax treatment introduced by Act No 349/2023 Coll. with effect from 1 January 2024 is not applied to state aid relating to advances for calendar years prior to 2024. The aim is to ensure the legal certainty that state aid paid after 1 January 2024 but relating to earlier periods will remain exempt from income tax under the previous rules.